How do you incorporate contingency and escalation factors into your cost breakdown structure?

由人工智能和领英社区提供技术支持

Cost breakdown structure (CBS) is a tool that helps you estimate and manage the costs of a construction project. It organizes the costs into different levels of detail, such as work packages, activities, and resources. But how do you account for the uncertainty and variability that may affect your costs over time? In this article, you will learn how to incorporate contingency and escalation factors into your CBS to improve your accuracy and reliability.

此文章中的业界达人

由社区从 3 条内容中精选。了解更多

Anubhav Shukla

Senior Cost Engineer (LinkedIn Top Voice) | Emission Estimator | Certified Supply Chain Professional(CSCP)
Sadegh Yazdani

Advancing Projects with Strategic Cost Management ?? | CCP, PRMP, CFCC, DRMP Certified | Helping Businesses Thrive ?? |…
Oseghale Okohue BEngr. Msc. MBA. DBA. Prince2?Practitioner

Accredited NEC4 ECC Project Manager & Snr. P6 Planner | EPICM, Offshore Engineering,Renewable Energy (HVDC & HVAC Power…

1 What are contingency and escalation factors?

Contingency and escalation factors are two types of allowances that you can add to your CBS to account for the risks and changes that may occur during the project. Contingency is the amount of money that you reserve to cover the unforeseen or unpredictable events that may increase your costs, such as delays, errors, changes, or accidents. Escalation is the amount of money that you adjust to reflect the expected or predictable changes in the market conditions that may affect your costs, such as inflation, exchange rates, or material prices.

添加您的观点

Sadegh Yazdani

Advancing Projects with Strategic Cost Management ?? | CCP, PRMP, CFCC, DRMP Certified | Helping Businesses Thrive ?? | Financial and Contract Adviser
举报内容
Integrating contingency and escalation factors into a cost breakdown structure is crucial for precise project cost estimation. Contingency factors address unexpected risks and uncertainties, serving as a financial cushion for unforeseen events. Contingency can be divided into specific categories, such as design or construction contingencies, tailored to different project phases. On the other hand, escalation factors account for inflation and price changes throughout the project timeline, varying by location and industry. To factor in escalation, one should estimate future costs based on historical data or expert insights, using a formula that adjusts the base cost according to the escalation rate over the project's duration.

已翻译

赞

2 How do you calculate contingency and escalation factors?

When calculating contingency and escalation factors, there are various methods and formulas you can use, depending on the level of detail and accuracy required. The percentage method involves applying a fixed or variable percentage to your base cost estimate, based on experience, industry standards, or historical data. The risk analysis method involves identifying and quantifying potential risks that may affect your costs, assigning a probability and an impact to each risk, and multiplying the probability and the impact to get the expected value of each risk. The index method uses an index or a factor to reflect changes in market conditions that may affect your costs, such as the Consumer Price Index (CPI), the Engineering News-Record (ENR) Construction Cost Index, or the International Construction Cost Factor. You would then multiply your base cost estimate by the index or factor to get the escalated cost.

添加您的观点

Anubhav Shukla

Senior Cost Engineer (LinkedIn Top Voice) | Emission Estimator | Certified Supply Chain Professional(CSCP)
举报内容
"Ever wondered how to keep cost discussions with stakeholders flexible and productive? One effective strategy I use is making my cost reports dynamic. It's like having a toolkit of options ready to adapt to any curveball in the project's path. This not only keeps everyone on the same page but also ensures we can adjust quickly and effectively when needed.

已翻译

赞

3 How do you allocate contingency and escalation factors?

Once you have calculated the contingency and escalation factors, you need to allocate them to your CBS in order to gain the desired level of detail and control. This can be done through top-down allocation, where the factors are applied to the total cost estimate of the project and distributed proportionally to lower levels; bottom-up allocation, where the factors are applied to individual cost elements and aggregated to higher levels; or hybrid allocation, which combines the two approaches and applies different factors to different levels of the CBS depending on complexity and uncertainty.

添加您的观点

4 How do you monitor and control contingency and escalation factors?

Contingency and escalation factors are not static, but dynamic, and may change over time as the project advances and new information becomes available. Thus, it is important to monitor and control them regularly to make sure they are in line with the actual costs and conditions of the project. To do this, you can update your cost estimate and CBS based on incurred costs and changes in scope, schedule, quality, or risks. Additionally, track and report the usage and availability of the contingency and escalation funds compared to the planned values and remaining work. Furthermore, adjust the contingency and escalation factors according to changes in risk exposure or market conditions. Finally, communicate and document any changes made along with their reasons and obtain approval from relevant stakeholders.

添加您的观点

5 What are the benefits of incorporating contingency and escalation factors?

Incorporating contingency and escalation factors into your CBS can bring several benefits to your cost management and performance. It can increase confidence and credibility in your cost estimate by accounting for uncertainty and variability, reduce cost overruns and underestimations with a buffer for unforeseen events, enhance decision-making and risk management by quantifying potential risks and changes, as well as improve communication and transparency by showing the assumptions that underlie your cost estimate.

添加您的观点

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

添加您的观点

Oseghale Okohue BEngr. Msc. MBA. DBA. Prince2?Practitioner

Accredited NEC4 ECC Project Manager & Snr. P6 Planner | EPICM, Offshore Engineering,Renewable Energy (HVDC & HVAC Power Cables, Wind, Solar, BESS, Grid Code Compliance (G99, G5/5, P28) & Integration, GIS/AIS Sub-Station)
举报内容
Incorporating contingency and escalation factors into the cost breakdown structure (CBS) involves allocating reserves for unforeseen events and cost fluctuations. For energy projects, this entails adding buffers for material price hikes, regulatory changes, and project delays within relevant CBS categories like construction, equipment, and permits. Accurate estimation and regular reviews ensure robust planning and risk mitigation in engineering project management.

已翻译

赞

Cost Engineering

+ 关注

给文章评分

我们借助人工智能创建了此文章。您认为这篇文章怎么样？

很棒不太好

举报此文章

查看全部

How do you incorporate contingency and escalation factors into your cost breakdown structure?

1

2

3

4

5

6

1 What are contingency and escalation factors?

2 How do you calculate contingency and escalation factors?

3 How do you allocate contingency and escalation factors?

4 How do you monitor and control contingency and escalation factors?

5 What are the benefits of incorporating contingency and escalation factors?

6 Here’s what else to consider

Cost Engineering

给文章评分

感谢您的反馈

更多Cost Engineering相关文章

更多相关阅读内容